The unexpected rate cuts by the Bank of England and European Central Bank on Thursday were a signal from Europe that economic growth is a pressing concern, yet the reaction in the US bond market was muted. Traders concentrated more on the employment report on Friday.
As expected, the employment data drove the direction of the treasury curve early in the day. Treasuries along all maturities were up slightly after the negative economic data, (-240k Change in Nonfarm Payrolls for October, a revision down for September to -284k from -159k and a rise in the Unemployment Rate to 6.5%). The rally in bonds prompted large investors to take profits going into the weekend, causing a sell off in the afternoon while traders await $55 billion of government auctions next week.
Interbank lending continues to be strong with overnight money costing well under the benchmark rates in both the U.S. and Europe. The improvement in liquidity has been felt in the market with spreads tightening but remaining very volatile as treasuries continue to trade all over the place day-to-day.
By Cliff Reynolds, Jr.
Junior Analyst
Friday, November 7, 2008
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